EUROPEAN TRAVEL INDUSTRY HARD HIT

By William DrozdiakBy William DrozdiakFebruary 8, 1991

PARIS, FEB. 7 -- Although losing the air war in the Persian Gulf to the United States, Iraq may be winning a different battle of the skies over Europe through the severe damage it is inflicting on the continent's tourism and travel industry.

Baghdad's repeated vows to carry out terrorist attacks around the world have prompted many airline passengers to stay home or make alternative travel arrangements since the war started three weeks ago. Already saddled with higher fuel costs since Iraq invaded Kuwait last August, European airlines are making drastic cutbacks in flights, personnel and spending because passengers are avoiding or delaying airplane trips.

Like a stack of dominoes, the impact of civilian war fears is successively crippling other parts of the travel and entertainment business in Europe. Hotels in Spain reported a 30 percent drop in bookings in January compared with the same month last year. Britain announced that 1 out of every 4 foreign tourists have canceled summer vacations. In France, the Folies Berge`res has furloughed its 250 dancers, waiters and musicians because attendance has fallen by more than half since the war scared away tourists.

Americans, in particular, are staying home in droves. The heavily traveled North Atlantic route to London has seen passenger traffic fall by one-quarter since the war began, according to the British Airports Authority. Citing the war and gathering recession, British Airways has dropped one of two daily Concorde flights to New York and has suspended the thrice-weekly run to Washington because of a lack of passengers.

Besides hotels that now go begging for foreign guests, restaurants are also reeling from the effects of the war. In Paris, where a wave of terrorist bombings four years ago by pro-Iranian Islamic revolutionaries injured people at sidewalk cafes, department stores and restaurants, empty tables abound at the most popular places. At the Ferme Saint Simon, a bistro normally packed at lunchtime with top functionaries from the defense and foreign ministries, clients were complaining the other day about an echo in the nearly deserted dining room.

Travel agencies have been hurt badly, raising the specter of massive layoffs and many bankruptcies. Jean Perrin, the head of France's union of travel agents, said member companies have received 18,000 trip cancellations since the start of the year. Business among all French travel agencies is down about 70 percent, and many agents are worried about going bust because they risk losing the cash flow from lucrative summer vacation bookings that are usually made in February and March.

Many large European companies, especially those affiliated with the United States, have issued travel restrictions that have greatly diminished business travel. IBM Europe, for example, has urged all employees to conduct most of their business dealings over the telephone or facsimile machine. When travel is absolutely necessary, employees are asked to avoid airlines and take the train, a company spokesman said.

While travel agencies are suffering, the sharp downturn among European airlines may have more ominous implications because of the size of their payrolls and the huge losses they are facing. Since the war began, only one-third of all seats on international flights in Europe have been occupied, according to the Association of European Airlines. Operating losses are accumulating so fast that some airlines may require government bailouts soon.

Greece's state-owned Olympia Airways, for example, has lost $67 million since the gulf crisis began last August, and officials say it may not be able to stay in business if the war lasts much longer.

The Netherlands flag carrier, KLM Royal Dutch Airlines, announced today that escalating operating losses had forced it to cut 2,000 of jobs from its worldwide payroll of 25,000. KLM said it had lost $130 million in the quarter that ended in December and would possibly lose three times that amount during the current quarter.

And in Brussels, the Belgian government confirmed a report today that its plan to sell half its stake in Sabena World Airlines to private investors would be put on hold because of the fall in traffic as a result of the gulf war. Belgian newspapers have reported that as many as one-quarter of Sabena's 12,000 workers may have to be laid off as part of a restructuring.

Most airlines are seeking to cope with the crisis by suspending flights and cutting nonessential jobs. Lufthansa, confronted with a one-third drop in bookings, has cut 120 out of 1,000 international flights from its schedule.

Air France, which has adopted three austerity plans in the past six months, has taken even more rigorous measures after learning that the number of passengers declined 22 percent in the second week of the war. More than 2,000 flights have been canceled for the first three months of this year, and its management this week decided to impose a freeze on hiring new personnel except for pilots and postponed all spending not related to essential daily services, such as maintenance.